Author: Smead Capital Management

When we are on the road, we like to tell the story of our imaginary bottled water company. The first year we manufacture one million bottles of water at a cost of $1. To attract customers, we sell them for 90 cents per bottle. In our second year we make two million bottles for $1 per bottle. Again, we sell them for 90 cents per bottle.

In financial euphoria episodes, investors become immune to the risks of capital destruction by blacking out to their normal risk aversion. Usually these episodes come from extrapolating the recent past out many years into the future. What can we learn from other disciplines about blacking out? How did this happen with investors in the past and where are risks in the U.S. stock market blacked out today?

We live in a world defined by change. Anyone in doubt need only wait a few days to be reminded. Humans endeavor to measure it, describe it, and develop strategies designed to control it. Sometimes these observations persist long enough for emerging beliefs of changing paradigms or constructs. At the end of cycles, reversion to the mean gets lost as the “new normal” removes old norms from consciousness.

Printable Version Dear Fellow Investors, Michael Milken rose to the top of Wall Street by way of the Wharton Business School with Drexel Burnham Lambert in tow. Milken’s work at Wharton was founded on the core theory that bond investors were rewarded by taking junk

Over the last ten years we’ve seen the rise of the Battle Royal markets and the shift away from one-on-one investing. There are all sorts of different battle royal’s, but the ones I watched as a kid were the biggest events in pro wrestling, where 12 wrestlers were put in the ring together and they attempted to toss each other out until one wrestler was left standing. Only the winner received prize money.

We believe money always goes where it gets treated the best. A recent article detailing the most attractive places in the U.S. for millennials to buy a house included the following cities, and that has implications for investing, not just nesting: